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Have a money problem that needs solving? Fin24 can help! This month our focus is on savings and how to better manage your budget. Send your question to editor@fin24.com or find the Money Clinic box on the right of our homepage.

QUESTION: We are 24 males and we have a stokvel (umgalelo) where each person contributes an amount of R4 200 a month and that amount is given to one member for that particular month (in turns). We are worried what will happen if one of us dies? How do we cover ourselves in this situation?

ANSWER: The members of a stokvel should look at ways to cover themselves in case of emergency or unexpected situations.

In this case, life cover for each member looks like a good idea. Lettie Mzwinila, Business Development Manager at Allan Gray, wrote on the investment manager's website that it is a good idea to formalise stokvels a bit more. The number of these trust-based savings clubs has increased, with ‘stokvel’ savings representing an estimated R49 billion.

“Many savings clubs keep their savings in cash or in the bank where they earn below-inflation returns. The old adage ‘cash is king’, does not always hold true. Having your money invested in a combination of assets that have the potential to grow in value over time can give you higher returns on your investment.

“When you put your money away, you want to know that it is safe and that you can access it when you need it. One of the ways to transform your savings or investment club is by investing in unit trusts. There are different kinds of unit trusts with different mandates and objectives.

“A good solution for many investors is a balanced fund, which provides access to a variety of asset classes such as shares, property and bonds. You can choose a unit trust whose investment objective is in line with the objective of your club."

Mzwinila mentioned five benefits of investing in a unit trust as a club: 1. Your investment decisions are in the hands of skilled investment managers 2. Your investment has the potential to grow higher than inflation 3. Your investment is safe as you are not invested in the investment company itself but in a separate unit trust that is safe from the company’s creditors 4. You can access your statements online and have transparent reporting for your savings club 5. You can access your investment when you need to. If you need further information about unit trusts, you can get more information through the websites of reputable investment managers. To find out which unit trust would be most suitable for your stokvel, you may wish to speak to an independent financial adviser.